Last year, I wrote about direct indexes, a lesser-known investment approach that has begun to overtake both ETFs and mutual funds in investor adoption. One of the hallmarks of this approach is the personalization that his traditional ETF and mutual fund structures do not offer.
The current financial environment is fraught with recession fears and inflation fears. Today’s investors, at all experience levels, seek investment strategies that not only combat market volatility, but also address personal and financial value. Consumers want personalization in most aspects of their lives. 2021 McKinsey Survey (opens in new tab) We know that consumers not only want personalization, they want it more than ever, especially in the wake of COVID-19 and the surge in digital behavior since 2020.
Advisors expect more clients to want portfolio personalization
Registered Investment Advisers (RIAs) recognize that investment personalization is becoming more and more important. More than half of the RIAs surveyed in Schwab’s 2022 Independent Advisor Outlook survey (opens in new tab) We expect clients to expect more personalized investment portfolios, a trend led by millennial investors.
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Access to more personalized portfolios has historically been designated for ultra-high net worth investors (opens in new tab), due to the high account minimum required and archaic technology. Today’s digitization advances in financial services are enabling investors to bring these types of services to different wealth ranges, allowing them to align their portfolios with their values and financial goals. I was.
Personalization can mean many things, such as building a portfolio around your existing investments, following a particular investment philosophy, or aligning your investments with your values.
Environmental, social and governance (ESG) investment practices in particular have gained prominence in recent years and are often notorious as many companies have been accused of misleading ESG performance.According to a report by the US SIF Foundation (opens in new tab), investors hold $17.1 trillion in assets selected according to ESG principles in 2020, up from $12 trillion just two years ago. ESG criteria are intended to help investors screen potential investments through a socially conscious lens.
Similarly, issue-based investing makes the concept of ESG investing clearer, allowing investors to overweight companies that fit a particular issue and divest from those that don’t. In the process, investors have greater control over their holdings and can personalize their portfolios to their specific views. Security-based investing is typically enabled in direct indices or thematic ETFs.
More personalization options available
Thematic investing in general is seeing increased adoption, especially in Exchange Traded Funds (ETFs). As adoption has grown, the options available have increased significantly. Today, investors can find mundane options, such as sector and industry funds, as well as more esoteric options, such as K-Pop-focused funds. (opens in new tab) (Korean pop music) or companies that appeal to Generation Z.
While not without risk, personalizing your investment can lead to better results. One of the biggest drags on investor returns is poor investment behavior. For example, waiting to sell or invest cash as a reaction after the market has already fallen.Lower returns due to poor investment behavior and other factors he could be 1.7% or more (opens in new tab)A bespoke portfolio that reflects the investor’s circumstances and views will help you maintain your investment strategy when markets become volatile.
All this with personalization options now available to investors regardless of their financial threshold, so why not let your investment work for you and your personal circumstances? Talk to us to find out how you can fine-tune your financial plan to fit your values and goals.
This article was written by and represents the views of a contributing advisor, not Kiplinger’s editorial staff.Advisor records can be viewed with the SEC (opens in new tab) or at FINRA (opens in new tab).